March 2007
In This Issue:
Association May Tow Cars for Vehicle-Rule Violations
Unit Owner Has Obligation to Pay Validly Levied Common Charges
Property Owner Did Not Suffer Emotional Distress From Lien Against Property
Assessments Violated Declaration
'Certificate of Occupancy' Refers to Any Certificate of Occupancy
Association Is Entitled to Reimbursement of Expenses to Maintain Condominiums
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Association May Tow Cars for Vehicle-Rule Violations

King v. Chism, 279 Ga. App. 712, 632 S.E.2d 463 (2006)

Powers of the Association: An association is allowed to tow vehicles for rule violations because the authority to do so is granted to them in the Georgia Condominium Act. Such an action is reasonable as long as it is not procedurally unfair, arbitrary, or capricious.

Around 1999, E. Howard King Jr. permanently parked his green Cadillac Seville in the common-parking area of the Chattahoochee Chase Condominium complex. At that time, the vehicle's registration was not current, its tag had expired, and King no longer maintained insurance on the vehicle. From that point forward, King could not start the car because its battery was dead. King testified that the community manager would periodically place a warning sticker on the vehicle that indicated it was going to be towed. However, when King threatened legal proceedings, the manager took no further action. In early-December 2002, another sticker was placed on the vehicle, indicating that it would be towed on Dec. 17. King removed the sticker, and he did not contact anyone at the Chattahoochee Chase Condominium Association Inc. ("association") about the sticker.
On Jan. 2, 2003, after being parked in the common area for approximately three years, the association had the car towed from the complex. Shortly thereafter, King sued the association, alleging that it unlawfully towed his vehicle, constituting unlawful deprivation of and wrongful interference with his property, trespass, and theft, and also alleging that the association acted in bad faith. The trial court granted summary judgment to the association, and King appealed.
In his appeal, King first argued that the association did not have the authority to create a rule that permitted it to remove vehicles from the common areas. The appeals court disagreed, pointing to the Georgia Condominium Act ("Act"), which states: "[A]ny unit owner and all those entitled to occupy a unit shall comply with any reasonable rules or regulations adopted by the association pursuant to the condominium instruments [that] have been provided to the unit owners…." Because a condominium represents a form of private contract among condominium owners, the court stated that the condominium documents, which govern condominium operations, should be strictly construed. The court considered the language of the declaration for Chattahoochee Chase and found that it contemplated the creation of rules and regulations and that Georgia law requires that unit owners comply with such rules and regulations. Therefore, King's argument--that the association was not authorized to enact the rules that led to the towing of vehicles--failed.
The court just as easily dispensed with King's next argument--that the association could not tow his car without complying with the due-process provisions of the condominium bylaws. While the bylaws provide for a written demand to discontinue the alleged violation, notice of a hearing, and holding of a hearing that allows the alleged offender a reasonable opportunity to be heard, the association had also enacted supplemental rules and regulations specifically pertaining to vehicles parked on the premises.  The vehicle rules and regulations include their own notice requirements.
The court relied on general rules of contract construction in interpreting the association's bylaws. Rules of contract construction state that a limited or specific provision of a contract will override a provision that is broader in scope. In this case, the notice requirements in the rules pertaining to vehicles would prevail over the more-general due-process rules, and, therefore, King's argument that the association was required to abide by the general due-process requirements also failed.
King's final argument was that the trial court's order for summary judgment should be reversed because there was a genuine issue of fact as to whether the association arbitrarily enforced the rule authorizing the removal of his car. The standard for reviewing a condominium association's decision is that "the exercise of authority was procedurally fair and reasonable, and whether the substantive decision was made in good faith, is reasonable, and not arbitrary and capricious." In determining whether the association acted reasonably in this case, the court considered evidence showing that King's vehicle was parked in the common area for approximately three years before it was towed and that he was given multiple notices that it would be towed. 

The court also considered that King failed to produce evidence of arbitrary and capricious enforcement. He offered no evidence that another unit owner abandoned a vehicle with an expired tag in the common area for nearly three years, or anything equivalent. According to the court, the evidence did not show that the association's decision to tow was unreasonable or made in bad faith. Because the association's decision to remove King's vehicle from the premises after he was given notice, in accordance with the association's rules and regulations, was permissible, the court affirmed the trial court's ruling.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

Unit Owner Has Obligation to Pay Validly Levied Common Charges

Bella Vista Condominium Association v. Byars, No. CV03180606, Conn. Superior Ct., Nov. 8, 2005

Assessments: In an unreported decision, a Connecticut superior court determined that when a condominium association forecloses against a unit owner due to unpaid common charges, special assessments, and other items lienable by statute, Connecticut courts do not generally regard special defenses.

The Bella Vista Condominiums consist of 28 units in Waterbury, Connecticut. In April 2003, Dennis Byars bought a unit from the Bella Vista Condominium Association ("association") that the association had acquired through foreclosure. The association later sued Byars, seeking foreclosure of a lien on his unit for various unpaid charges. The association stipulated that Byars has not paid common charges, late fees, and a special assessment owed to the association for the years 2003 to 2005. The common expenses levied on Byars' unit in the Bella Vista Condominiums were $171 per month.
Byars, in a special defense, claimed that he was not responsible for the past-due charges because the association's board was not properly elected, and, for that reason, the board could not adopt the 2003-2005 budgets. He also claimed that the deed to his unit was defective. The trial court did not find any merit in Byars' defenses.
Citing Southbridge Associates LLC v. Garofalo, 53 Conn. App. 11, 728 A.2d 1114 (1999), the court noted that Southbridge sets out the defenses to an action of foreclosure in common law: discharge, release, or satisfaction. In addition to the defenses to a foreclosure action at common law, Connecticut courts have permitted several equitable defenses to such an action. If the mortgagor is prevented, by accident, mistake, or fraud, from fulfilling a condition of the mortgage, foreclosure cannot occur. Citing Article 2.1(a) of the association's bylaws, Byars contended that the association's board was not properly configured. According to the bylaws, the board must consist of four members, and the members must be unit owners. Byars maintained that, because the board did not have four members, it was powerless. The facts show that when the association's 2003 budget was approved, the board had only three members. In its review of the association bylaws, the court found that Article 2.1(a) provides that the majority of the board, except for any board member elected by the declarant, must be unit owners.
The appeals court determined that there was no prohibition against someone other than a unit owner serving on the board as long as a majority of the members of the board are unit owners. The appeals court also stated that the facts show that two of the three board members who approved the 2003 budget were unit owners, thereby meeting the requirements. Regarding the requirement that the board have four members, and the fact that the board approving the 2003 budget consisted of three members, the court found that a vacancy on the board did not invalidate that board as long as a quorum was present.
In this case, the bylaws state: "Except as otherwise provided in these bylaws, the unit owners present in person or by proxy, at any meeting of the unit owners, shall constitute a quorum at all meetings of unit owners."  The court found that the bylaws allowed for a quorum to be established if only one unit owner was present. Because there were three board members present and voting to approve the budget, there was a quorum, and the budget established was valid according to the requirements of the bylaws. Therefore, the court dismissed Byars' first argument.
Byars' second argument was that the board was improperly elected because the election was not conducted by ballot as required by the bylaws. Again, the court dismissed Byars' argument, pointing to a provision of the bylaws that states: "At any meeting at which board members are to be elected, the unit owners may, by resolution, adopt specific procedures for conducting the elections, not inconsistent with these bylaws or the Corporation Laws of the State of Connecticut." At the annual meeting held Oct. 24, 2001, Greg Lubtski and Dolores Smith were elected as board members on a motion made by two unit owners. Therefore, the appeals court found that all the association's budgets for the years in question were valid, and that the board created lawfully imposed common charges, late fees, and assessments for the period of April 3, 2003, through October 2005.
Byars' final contention was that the deed conveying title to his condominium unit was invalid because a board member at the time was not a validly elected member. The appeals court rejected this argument, too. The court also noted that the association maintained the common property, cut the grass, removed the snow, maintained insurance, and did all that was required of it under Connecticut's Common Interest Ownership Act. The court determined that Byars received a benefit from these services and was required to pay his fair share of the costs. The appeals court found that the liens imposed by the association were valid and granted the association's request to foreclose the liens against Byars' condominium unit.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Property Owner Did Not Suffer Emotional Distress From Lien Against Property

Delsasso v. Broder, No. CV030180347S, Conn. Superior Ct., Nov. 14, 2005

Risks and Liabilities: In an unreported case, a Connecticut superior court ruled that a property owner did not suffer emotional distress when an attorney filed a judgment lien on her property, because she did not establish the elements of emotional distress.

This case involves a slander-of-title action filed by property owners against Gary Broder, an attorney in Connecticut. In the first part of the owners' complaint, Claudette Delsasso alleged that Broder wrongfully and maliciously filed a judgment lien against her property knowing that the judgment in question was not against Delsasso. The second part of the complaint alleged that Broder's conduct was so extreme and outrageous that it caused Delsasso to suffer emotional distress. The third part of the complaint alleged that the filing of the lien was an unfair and deceptive act in violation of Connecticut statutes. The parties agreed that the lien was released nine days after it was filed, that Delsasso suffered no out-of-pocket pecuniary loss, and that she sought only damages for emotional distress.
Broder argued that Delsasso's claim failed to satisfy the elements of emotional distress, which are that: (1) the actor intended to inflict emotional distress or he or she knew or should have known that emotional distress was the likely result of his or her conduct; (2) the conduct was extreme and outrageous; (3) the defendant's conduct was the cause of the plaintiff's distress; and (4) the emotional distress sustained by the plaintiff was severe. Broder argued that because the lien was released nine days after it was filed, his action did not satisfy the degree of egregiousness necessary to satisfy a claim of emotional distress.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.  
A claim for slander of title requires "uttering or publication of a false statement derogatory to the plaintiff's title, with malice causing special damages as a result of diminished value of the plaintiff's property in the eyes of third parties. The publication must be false, and the plaintiff must have an interest in the property slandered." Additionally, pecuniary damages must be shown. In this case, no such losses were reported.
As required by the court, Delsasso also failed to file an affidavit with information to substantiate the allegations. Instead, she simply asserted such claims but did not give any factual accounts detailing them. As a result, the court dismissed the matter, stating that case law did not support a claim for emotional distress with regard to violating Connecticut statutes.

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Assessments Violated Declaration

Garcia Produce LLC v. De La Fuente Business Park Owners Association, No. D045269, Cal. App. Ct., Dec. 9, 2005

Assessments/Covenants Enforcement: In an unpublished decision, a California appeals court upheld a trial court's opinion that an owner was not required to pay assessments because the assessments were allocated differently from the formula set forth in the declaration.

Garcia Produce LLC ("Garcia") owns property in the De La Fuente Business Park, a multi-purpose industrial/commercial common-interest development in Otay Mesa, California. The property is subject to a declaration of protective covenants, conditions, and restrictions, and the development is administered by De La Fuente Business Park Owners Association ("association"), created under the terms of the declaration. In 1998, the developer turned the association over to its members. At the organizational meeting, Roque De La Fuente, vice president of Border Business Park Inc., the owner and developer, appointed two other property owners to create the initial board of directors. The board voted to levy assessments on the lot owners so the board could operate the association. 
The declaration sets forth a formula that apportions the assessment fees among owners based solely on the amount of net acreage owned by each owner. Instead of following the formula specified in the declaration, the board adopted a two-tier formula for apportioning assessment fees, charging $50 per acre for owners of lots with public infrastructure improvements and $10 per acre for owners of lots without infrastructure. The board instructed the association's vice president to notify owners about the assessments but took no steps to amend the declaration's formula for allocating assessments.  
At meetings in late 2000 and early 2001, there were discussions about the assessments levied against the owners and the problems the association faced in collecting unpaid assessments from several owners, including Garcia. The minutes of these meetings reflect that, during the discussions, De La Fuente stated that four units in the business park had infrastructure improvements (including streets, sewer, water, sidewalks, and electricity) and two did not. He explained that when the board voted on the assessments in 1998, it thought it would be unfair to charge fees for areas that did not have infrastructure in place. Therefore, the board decided to charge the land without infrastructure less than the land with infrastructure, resulting in the revised formula for allocating assessments. 
At board meetings in January and March 2001, the board voted to notify nonpaying owners of their past-due assessments and the association's intent to foreclose those that remained in arrears. At this time, De La Fuente told the board that the prior assessments had been properly approved. Garcia, who was charged $50 per acre, refused to pay the assessments, and the association began foreclosure proceedings in 2002. 
Garcia sued the association, requesting a declaratory ruling and injunctive relief alleging breach of contract and other torts. He argued that the two-tier assessment was improper because the declaration required apportionment of assessments among the owners based solely on net acreage. He further alleged that the association had not followed procedures required under the declaration in imposing the assessments, and that it had spent assessments collected in a manner unauthorized by the declaration. He requested a determination that the assessments were null and void and that any future assessments would be apportioned pro rata among owners based on the net acreage owned, and that future assessments could be used only for purposes authorized by the declaration. The parties stipulated that the association would not pursue foreclosure pending determination of Garcia's lawsuit.
The trial court found that there was no triable issue of fact about whether the association's two-tier assessment formula violated the declaration. The declaration explicitly and consistently requires that all assessments be imposed pro rata based on net acreage. The court ruled that, as a matter of law, the association exceeded the authority granted by the declaration when it assessed different rates to the owners based on whether the lots had infrastructure. The court did not grant summary judgment on whether the association followed proper procedures in imposing the assessments or whether it had expended assessment funds for unauthorized purposes, because the allegations posed triable issues of fact. 
Garcia filed a second amended complaint dropping allegations of improper procedures and expenditures and dismissing the nuisance and slander counts, and moved for judgment on the pleadings. The court granted the motion and explained that the parties had agreed that the validity of the other causes of action in Garcia's complaint depended on whether the association's scheme was improper. Because the court had already ruled that the association exceeded its authority by assessing the owners according to the two-tier formula, Garcia was entitled to judgment on the pleadings on the second amended complaint.  The court ruled that assessments in the amount of $31,000 and the association's lien against Garcia's property were void, and that future assessments be determined in accordance with the formula set out in the declaration. The court awarded Garcia $112,215.78 in attorney's fees.
The association cross-complained that the two-tier assessment was authorized by the declaration, had been imposed properly, and was a good-faith exercise of the board's discretion, but dismissed its complaint after the court ruled that the assessment formula violated the declaration. The association appealed.
The association argued that the trial court erred when it rejected its argument that a waiver provision in the declaration precluded Garcia's suit. The court rejected the association's argument that Garcia was precluded from filing the suit by the declaration's waiver provision, Section 18.2, which states: 

Neither Declarant, the Committee, the Association, or any member thereof shall be liable to any Owner, Lessee, Licensee, or Occupant of real property subject to the Declaration by reason of any mistake in judgment, negligence, nonfeasance, action, or inaction in regard to the enforcement or failure to enforce the Declaration or any part thereof, unless such actions or inactions of the Committee constitute gross negligence or willful misconduct. Every Owner, Lessee, Licensee, or Occupant, by acquiring his interest in a Lot, agrees that he will not bring any action or suit against Declarant, the Association, or the Committee, or any member thereof, from time to time, to recover any such damages or to seek equitable relief unless such action or suit is based upon gross negligence or willful misconduct. This section shall not prevent the enforcement of any legal or equitable right of one Owner against another.

However, the court relied upon Sections 11.1 and 11.2 of the declaration, which explicitly provide for enforcement of the declaration and the association's and owners' rights to sue for breach. Section 11.2 provides that violation of the declaration is a nuisance and that all permissible remedies for a nuisance shall be available. In addition, Section 11.3 of the enforcement article provides for an award of attorney's fees to the prevailing party in "any legal or equitable proceeding to determine rights of the parties to enforce or restrain the violation of the declaration."
The trial court rejected the association's argument, finding that the association's conduct of imposing the assessments over Garcia's protests and pursuing foreclosure was within the "willful misconduct" exception to the waiver provision. On appeal, the association argued that the trial court misunderstood the meaning of the term "willful misconduct."
The appeals court found that it was clear that the trial court's ruling, based on contract law, fell within the scope of the declaration's enforcement article, which expressly allows the association or an owner to sue for enforcement of the declaration. When the trial court issued its judgment on the pleadings in favor of Garcia, the only allegations remaining pertained to the association's contractual obligation to abide by the terms of the declaration when setting the assessments. The appeals court found that Garcia's second amended complaint clearly fell within the scope of the declaration's enforcement provisions, allowing actions to stop and remedy its breach. The appeals court determined that, because the trial court's ruling did not go beyond adjudication of the contract enforcement permitted by Section 11.1 of the declaration, there was no need to evaluate the waiver provision.
The association argued that the trial court erred when it ruled that the two-tier assessment violated the declaration. The court cited California case law, which states: "An association may not exceed the authority granted to it by [its declaration of covenants, conditions, and restrictions]. Where the association exceeds its scope of authority, any rule or decision resulting from such...act is invalid whether or not it is a reasonable response to a particular circumstance." The court agreed with the trial court's determination that the association had no authority to set up an assessment schedule that differed from the one set forth in the declaration without amending the declaration to expand the factors for allocating assessments.
The association argued that the declaration as a whole reveals an intent to confer considerable discretion on the association to protect the interest of its members, including levying assessments "as determined by the Association." The court felt the argument ignored the declaration's detailed provisions specifying how the association was to allocate assessments. 
The association argued that the "drafter" of the business park's governing documents could not have foreseen that some lots would be sold having neither streets nor utilities, and that the owners would still be required to pay the full assessment rate, even though use of their property was limited. The court found that the record showed that the infrastructure issue was foreseeable; the park was a phased development, starting with one unit of 20 lots and eventually being expanded to include six units. The declaration contemplated the expansion by providing for annexation of future phases. The court concluded that the drafter of the 1986 declaration recognized the possibility that not all lots would acquire infrastructure at the same time. 
The court further concluded that if the drafter had wanted to give the association more leeway in the selection of assessment-allocation criteria, broader language would have been used in the declaration. Instead, the declaration repeatedly and consistently specifies a precise net-acreage formula for division of assessment fees among owners. Reading the governing documents as a whole, the appeals court concluded that the association had no authority to impose a different obligation on Garcia by deviating from the formula set forth in the declaration, absent a proper amendment of the documents.
The association argued that the appeals court should rely on California's deference rule, which states that courts will "uphold decisions made by the governing board of an owners association so long as they represent good faith efforts to further the purposes of the common interest development, are consistent with the development's governing documents, and comply with public policy." The court found the association's deference argument was misplaced because it applies only when the association's decision is in the scope of its authority under the governing documents. The appeals court determined that the trial court properly granted Garcia's motion for judgment on the pleadings.
The declaration provides for the award of reasonable attorney's fees to the prevailing party in actions to enforce the declaration. The association argued that the trial court should have reduced the fees awarded to Garcia to account for expenses related to the issues that were dropped from the original complaint. The trial court rejected the association's argument because the case "involved a common core of facts: the imposition of assessments in apparent violation of the declaration." The appeals court stated that as a general rule, a prevailing party entitled to fees should be awarded fees for all hours reasonably spent on the litigation. When a plaintiff achieves the main objectives of the lawsuit but fails to prevail on all objectives, a reduction of fees in not required. Citing Downey Cares v. Downey Community Development Committee, 196 Cal. App. 3d 983, 242 Cal. Rptr. 272 (1987), the court stated, "Where a lawsuit consists of related claims, and the plaintiff has won substantial relief, a trial court has discretion to award all or substantially all of the plaintiff's fees even if the court did not adopt each contention raised." 
In reviewing the trial court's discretionary decision not to apportion fees between successful and abandoned claims, the appeals court found that Garcia filed the lawsuit in response to the association's foreclosure proceedings after he refused to pay the two-tier assessments. His main objectives were to stop foreclosure on his property and require the association to impose assessments as set forth in the declaration. Because Garcia achieved his main objectives of stopping foreclosure, invalidating the two-tier assessment, and relieving his obligation to pay the assessments, and because the abandoned theories dropped from his complaint were related to these main objectives, the appeals court concurred with the trial court's ruling.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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'Certificate of Occupancy' Refers to Any Certificate of Occupancy

Hamptons West Condominium Association Inc. v. Hamptons South Condominium Association Inc., 919 So. 2d 509 (Fla. Dist. Ct. App. 2005)

Contracts: Costs associated with maintenance of condominium elements to be shared between two condominium associations, as required by agreements between the associations, are to be paid beginning on the date of issuance of a certificate of occupancy, even if the certificate of occupancy is temporary.

Hamptons West Condominium Association Inc. ("Hamptons West association") is the condominium association for Hamptons West Condominium, a 342-unit condominium built in 1984.  Hamptons South Condominium Association Inc. ("Hamptons South association") is the condominium association for Hamptons South Condominium, a 250-unit condominium built in 2004. Hamptons West association sued Hamptons South association, seeking declaratory relief and reimbursement of operating and recreation expenses from Hamptons South association. Pursuant to the Accessways, Guardhouse and Security Gate Easement, Use, and Maintenance Agreement ("accessways agreement"), Hamptons West association had the responsibility to operate and maintain the guardhouse that served both condominiums and Hamptons South had the obligation to provide 50 percent of the costs and expenses associated with the operation of the infrastructure necessary to comply with the accessways agreement. 
Hamptons West association was also obligated to provide recreational facilities to Hamptons South residents under a Recreational Land Use Agreement ("recreational agreement") between the two parties. Pursuant to that recreational agreement, Hamptons South association had an obligation to pay 50 percent of the costs of maintaining the recreational facilities. Under both agreements, Hamptons South association's obligation to provide its portions of the costs and expenses only arose once a certificate of occupancy was issued.
The City of Aventura, Florida, issued the certificate of occupancy on Hamptons South units on Jan. 29, 2005; however, prior to that date a temporary certificate of occupancy was issued to the majority of units in Hamptons South. Hamptons West association's position was that the obligation of the Hamptons South residents to contribute to the expenses described in the agreements arose when the temporary certificates of occupancy were issued. Hamptons West contended that because the majority of unit owners at Hamptons South were able to enjoy the benefits the agreements provided as of the dates of the issuance of the temporary certificates of occupancy, Hamptons West should be reimbursed from that date forward. Hamptons South association's position was that the agreements obligated the paying of expenses only upon the issuance of "a certificate of occupancy," and not upon the issuance of temporary certificates of occupancy. Hamptons South contended that no payment was due until the certificates of occupancy were issued on Jan. 29, 2005.
Neither the condominium documents nor the South Florida Building Code makes a distinction between a "temporary" or "partial" certificate of occupancy and a certificate of occupancy. Because Hamptons West and Hamptons South are governed by the agreements, the court determined that the words in the agreements have specific meanings and that those meanings were the best evidence of the intent of the parties to the agreements. Therefore, the appeals court reversed the trial court's decision and required Hamptons South to reimburse Hamptons West from the time the temporary certificates of occupancy were issued.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited.

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Association Is Entitled to Reimbursement of Expenses to Maintain Condominiums

In re: Sports Shinko (Florida) Co. Ltd. v. Greenlefe Golf and Tennis Resort, 333 B.R. 483 (M.D.Fl. 2005)

Federal Law and Legislation: Only those expenses incurred by a condominium association that were reasonable, actual, necessary, and beneficial to the post-petition bankruptcy estate were reimbursable as allowable administrative expenses under Section 503 of the U.S. Bankruptcy Code.

Prior to filing Chapter 7 bankruptcy, Sports Shinko (Florida) Co. Ltd. ("Shinko") operated a golf and tennis resort in Polk County, Florida. Its assets included 405 condominium units on the resort's premises. Greenlefe Association of Condominium Owners No. 1 Inc. ("association") is a nonprofit corporation organized to administer the condominiums pursuant to a declaration of condominium. 
The debtor filed a petition under Chapter 7 of the U.S. Bankruptcy Code ("Code") in February 2002. At that time, the debtor's assets included, in addition to the condominium units, three golf courses, tennis courts, banquet facilities, and a wastewater-treatment facility situated on approximately 1,000 acres of land. All of the debtor's assets, including cash and receivables, were encumbered by a lien held by First Columbine Insurance Company in the principal amount of $11,512,403.87. 
The same day the bankruptcy petition was filed, the court appointed Traci Stevenson as the Chapter 7 trustee. On Feb. 28, 2002, the court granted Stevenson authorization to operate Shinko's wastewater-treatment facility. The authorization was expressly limited to the wastewater-treatment facility, however, and did not extend to the recreational facilities or condominiums located on the premises. 
Under Florida statutes and the terms of the declaration, a condominium association is obligated to maintain and serve the condominium property. Charles Peloquin, the association's general manager, approached Stevenson and asked her to pay the estate's share of the association fees while the bankruptcy was pending, stating that the electricity would be cut off if the estate's share of the association fees were not paid. He understood her to indicate that the association would be repaid by the estate upon filing an administrative claim with the bankruptcy court for continuing to provide its regular maintenance services for the condominium units.
In May 2002, Stevenson filed a motion regarding sale of the property, and the association filed a motion to compel payment of the assessments, petitioning the court to direct Stevenson to pay assessments owed for the first and second quarters of 2002. The association stated that it needed the funds to pay specific expenses incurred for insurance, electricity, lawn care, and legal fees, among other costs. Peloquin testified that the association spent a total of $553,177.01 for maintenance of the condominium units during the period in which Stevenson was in control of Shinko's property. 
Stevenson denied that she had authorized the association to make any expenditures for maintenance of the condominium. She testified that she had not been involved in the decision-making process regarding the specific payments made by the association, and that particular expenses were not presented to her as they were incurred. She testified that she told Peloquin that he needed to get a court order for the funds because she did not have the authority to pay a monthly maintenance fee without a judge's instruction. The association's motion was denied.
In June 2002, the court approved the sale of substantially all of Shinko's assets to Central Florida Investments Inc. for $11,512,403.87, plus interest and late fees. The sale closed on July 1, 2002. The association then filed a motion and an amended motion, seeking allowance and payment of its administrative expenses. At the hearing, the court considered whether the association's claim satisfied the standard for administrative expense status required by Section 503(b) of the Code. 
Section 503(b) states, in part, that "after notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under Section 502(f) of this title, including...(1)(A) the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case." To establish its administrative claim, the association had to show that the estate received an actual, concrete benefit in exchange for the association's expenditures.
Stevenson actively marketed the resort, including the condominiums, for sale by distributing comprehensive packets of information about the resort to a "marketing list" that was developed through inquiries from approximately 140 potential buyers. She used interviews with trade magazines and news sources further to promote the sale. Additionally, she showed the property to more than 40 prospective buyers. She ultimately sold the property for the adjusted purchase price of $12,422,610.05. First Columbine, the debtor's primary secured creditor, received in excess of $11,512,403.87 at closing. On Jan. 9, 2003, the court entered an order authorizing the distribution of additional amounts from the sale proceeds. First Columbine received $130,819.51 more and the association received $123,857.49. The association received $50,000, and the Bank of America received $3,000. Finally, $450,155.55 was placed in a reserve account for Stevenson and her professionals. 
Stevenson also received $250,000 as a nonrefundable deposit from an unsuccessful bidder on the property, which remained available for payment of administrative claims. It was clear that Stevenson had used the assets of the estate, including the condominiums, to aggressively market the property in administering the case and that, because of the sale, several creditors received significant payments. The buyer, who was primarily in the business of owning and selling time-share properties, intended to renovate the condominium units and resell them at substantially increased prices. Because the condominiums were an integral part of the sale, the court found that the association was entitled to payment for its post-petition expenditures. However, the more difficult question was the quantification of the association's claim. 
The court evaluated each disbursement made by the association to determine whether the specific payments provided actual benefit to the estate. To be allowable as an administrative expense, the expense must be reasonable, actual, necessary, and beneficial to the estate. The court found that certain items, such as payments for supplies and professional fees, did not benefit the estate, but that charges for insurance, utilities, cable, fire-alarm monitoring, landscape maintenance, and taxes, did. 
The court relied on federal case law to establish that the party asserting an administrative claim bears the burden of proving that the claim should be allowed. The court, therefore, evaluated each category of expenses claimed by the association to determine whether the association satisfied its burden of proof. Stevenson argued that the association's claim should be denied in its entirety because it did not arise from transactions with the bankruptcy estate. The court was not persuaded by that argument, finding instead that the qualification was to ensure that the benefit derived from the transaction for which payment was claimed went to the bankruptcy estate and not the pre-petition entity. 
The court found that the association provided an actual and concrete benefit to the post-petition estate by providing maintenance and security of the condominium while Stevenson marketed the property. It was clear to the court that Stevenson was aware of the services the association performed. Stevenson visited the property many times as part of her marketing efforts. Despite her apparent knowledge of the ongoing maintenance of the property and her acknowledged status as a "majority owner" of the condominium, Stevenson did not direct the association to terminate its maintenance of the condominiums. The court deduced that the association was allowed to continue its normal maintenance activities for more than four months without instruction from Stevenson, even though she was aware of the activities, and concluded that the association's expenditures resulted from a transaction with the estate within the meaning of Section 503(b)(1) of the Code. 
The association contended that its entire claim should be allowed because the declaration imposed a duty on the association to maintain the condominium and the covenants set forth in the declaration, "run with the land." None of the cases cited by the association in its argument related to requests for administrative expense status under the Code, and none held that all of an association's post-petition expenditures should be entitled to allowance as an administrative-expense claim solely because the expenses were incurred pursuant to the association's obligations under the declaration. The court found that the existence of the covenants did not compel the conclusion that the association's disbursements were necessary and concrete to the estate.
The court determined that the association was entitled to administrative-expense status for part of its claim because certain expenditures provided an actual and concrete benefit to the estate in connection with Stevenson's sale of the property. The balance of the association's claim was disallowed because the association did not satisfy its burden of proof that the disbursements were reasonable and necessary costs of preserving the estate. Accordingly, the court ordered that the association's motion and amended motion be granted in part--$72,400.50 as an administrative expense under Section 503(b)(1) of the Code--and denied in part. The balance of the claim was not allowed as an administrative-expense claim.

©2007 Community Associations Institute. All rights reserved. Reproduction and redistribution by CAI members or nonmembers are strictly prohibited. 

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